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HomeMy WebLinkAbout2003-07-31 MinutesFireman's Pension and Relief Fund Board Meeting July 31, 2003 Page 1 of 10 MINUTES OF A MEETING OF THE FIREMAN'S PENSION AND RELIEF FUND BOARD July 31, 2003 A meeting of the Fayetteville Firemen's Pension and Relief Fund will be held at 11:00 a.m. on July 31, 2003 in Room 326 of the City Administration Building. Present: Danny Farrar, Pete Reagan, Robert Johnson, Marion Doss, Ronnie Wood, Marsha Farthing, Steve Davis, Sondra Smith, Secretary, Kim Cooper with Longer Investments, Attorney Mark L. Martin, Attorney Daran Williams, City Attorney Kit Williams & guest. Absent: Mayor Coody The meeting was called to order by Marion Doss. Report from Attorneys Chuck Stutte and Mark L. Martin: Mark L. Martin: We are here today to report on our progress since the last time we met. There were two issues that we were researching that we told you we would have answers by today on. The first was the issue of how to proceed on this claim, either through levitation or through arbitration, of course there is an arbitration clause in the agreement, we researched it thoroughly, and it is our recommendation to this board that we precede by arbitration, as we pretty much feel it is an air tight clause. We would like your permission to do so at the appropriate time. Our two law firms as we discussed earlier are working on this as a project, first of all we are monitoring the agreement and we are also working together on the losses that have been substained by the Board. We are also here today to answer any questions about how those losses have been identified in value. To the best of our knowledge the losses which have been substained by this organization are $2.9 million, of those we have determined that $1,883,000 are identified losses and we are still exploring another $740,000. Of those identified losses $1,355,920 are securities bought when the ratings were below the required levels, the other $443,000 of losses are attributable to investments in foreign stocks, it is our position they did not have authority to engage in. Daren Williams: Mark gave the basic overview, your investment policy outline for your broker how you want to invest and what you should invest in. The investment advisor here clearly acted outside of your investment objectives. $1.3 plus million in securities were bought that do not conform with investment objectives, they didn't at the time of purchase nor have they ever conformed with your investment objects. Those were clearly outside the realm of what your broker should have been investing in. The foreign securities, $443,000, your investment objectives, the ones that we have state that in order to invest in a foreign security, the board had to approve that prior to any investment, so unless there was board approval all of these investments also fell outside the scope of your investment objectives. Fireman's Pension and Relief Fund Board Meeting July 31, 2003 Page 2 of 10 There were about $84,000 worth of investments that at the time of purchase they were clearly within your investment objectives. However those securities fell below the weighting of securities that you allowed for investments, therefore your broker should have immediately sold those securities and put them into securities that were within your investments objectives. You have to give them a reasonable time to sell, so to say all that $84,000 is a loss is probably not correct. There is $740,000 worth of investments that we have to do further research on to find out exactly some of the weightings at the time. We did not have time to do extensive research beyond what we could pull from the records that you already had. It is quite possible that many of the investments within the $740,000 are outside the scope, we know for sure some of them are outside the scope, some are within the guidelines but probably fell outside the guidelines while the securities were held within your portfolio. You have a case that is clearly worth pursuing, you have about $2.9 million in potential damages some of which have been identified some of which we have to figure out. A broker has to invest within the investment objectives that you have set forth. Your investment objectives were fairly conservative and for the long term. The broker you had invested in some very volatile stock. Stock which would generally cause you to have tremendous gains or tremendous losses in a short period of time, clearly much of what he invested in was totally outside of the realm of the type of investments that you asked him to invest in. With regard to the arbitration clause it is pretty air tight we could fight and litigate to get around the arbitration clause, it would take a tremendous amount of time; the likelihood of success is probably not on our side. Most cases like this you do not succeed in trying to get out of a signed, sealed arbitration clause. Our recommendation would be to proceed with arbitration. We have had some experience with Merrill Lynch and they have bad some problems in Arkansas. Pete Reagan: You first reported $2.9 million as what you calculated, does that include the other $700,000. Daran Williams: We are including all of that as a loss because your portfolio loss that amount during the time that you had this broker. To properly characterize that as a loss that is attributed to fraud or being outside of the investment objective, I have to do more research. In the time you had this investment advisor a $2.9 million decline in a portfolio this size is a lot. Somebody was really not doing their job, clearly an almost $3 million loss in a portfolio this size is a substantial amount, particularly given your investment objectives which were very conservative over the long run as opposed to short term investments. Kit Williams: I wonder about the potential time frame to get to some sort of final resolution. The reason I am asking that is I am confused a little bit about what is going to happen, there has been a suggestion that the pension funds including this pension fund be transferred to the state LOPFI system which is the system for current employed firemen and policemen. I don't know how that would affect this board's ability and the contract that we have with you. That concerns me a little bit especially with that much money out Fireman's Pension and Relief Fund Board Meeting July 31, 2003 Page 3 of 10 there with you all putting in all this time. Can you give us any kind of indication when is the earliest that you can expect to be able to come to some sort of resolution. Daran Williams: With regards to the timeframe on arbitration, I understand the Board is moving forward with LOPFI in the next several months, clearly this arbitration would not be complete by that time. We are still in the beginning stages, to give you a timeframe of arbitration that is like throwing a dart at a wall. Marion Doss: Do you think about year? Daran Williams: It could be that long. There are not a whole lot of complex facts. There are going to be defensives raised. I believe the action that you may take today in your resolution may speak to how this will be handled if we move forward. Mark L. Martin: What we would like is the opportunity to proceed with this. Kit Williams: I don't know if the Board would remain in any kind of control if they did that. Pete Reagan: I spoke to Cathryn when she was here about his, she will not take plans that are under litigation, she said you keep your Board intact and draft your resolution to reflect that until the asset recovery is completed, then you transfer the administrative powers to LOPFI, but in the interim you can send the money. That is the way our resolution is drafted, that the Board stays intact for the purpose of asset recovery. Kit Williams: But they don't administer it then? Pete Reagan: LOPFI will manage the money. The only reason this Board would stay intact is to deal with asset recovery. I drew the resolution up, this is what was recommended, but it includes some work for Kit to draft an ordinance to reflect all of that. A discussion followed on the resolution that was given out by Pete Reagan. Kit Williams: I will probably ask the Attorney General about our rights and powers and how that could possibly affect the contract. It says we are going to transfer the administration of assets of Fayetteville's Fire Pension Relief Fund, well an asset is this, and you all are representing a big asset, almost a $3 million asset potentially. A cause of action is an asset, so I need to talk to the Attorney General just to make sure that somehow we don't get ourselves in some sort of bind on this if we move to fast. I am a little concerned about somehow getting to a situation, possibly giving Merrill Lynch some sort of defense, saying you are not representing them. We don't want to give Merrill Lynch any possible way out if there is a reasonable chance that we can collect some sizeable money. Fireman's Pension and Relief Fund Board Meeting July 31, 2003 Page 4 of 10 Mark Martin: I think that is a very good idea, that way we will know that we are going to accomplish what we are attempting to accomplish. Danny Farrar: Kit, how long as far as an opinion from the Attorney General, how long does something like that take. Kit Williams: My experience has been it will probably take two or three weeks to get any opinion from the Attorney General, depending if it's something they don't know anything about, it could be longer, if it something they already know about that they have looked at before, then they would be real fast. Kit Williams: I will go ahead and request that today. Steve Davis: The other part of it too, we can split the transfer, right now it is one ordinance. Kit Williams: I have already drafted the ordinance; I drafted it the same for both Police and Fire and police does not have any litigation going on. Steve Davis: We can split them; City Council probably doesn't want to pass this in one meeting. I think we have time to look at as many of the aspects of this that we can. Kit Williams: I will request an Attorney General's opinion hopefully today, if not today certainly tomorrow I will get it out, and have him maybe even advise on how the ordinance should read to make sure that we are protected. Marion Doss: Steve I was under the impression that we needed to move forward on this pretty fast, I don't want to do anything careless and leave anything out. Steve Davis: There are two overriding concerns, one is from the City's stand point we want to make sure that the Fire Pension fund has recovered all of the monies that it is legally entitled to recover, second from the City's perspective we do not want to be put in a position where we have to record a liability on our financials if we can avoid it. The recording of a liability on the City's financials is of secondary in collecting the monies due to the Fire Pension Board in recovering as much as we can. Kit Williams: You all have a fiduciary responsibility and we need to make sure to collect all the money that we rightfully can get. We have to make sure that we don't do anything to mess that up. The City is concerned about whether or not this goes down on their debt; your concern is you need to make sure the fund has as much asset as it possibly can. Steve Davis: The recording of the debt on the financials, it may be a fairly lengthy explanation in our financial statement but we can work on it. Fireman's Pension and Relief Fund Board Meeting July 31, 2003 Page 5 of 10 Danny Farrar; Kit basically until you get the Attorney General's opinion back, we are on hold. Kit Williams: I think we ought to be, I want the Attorney General to tell me that we can do this without jeopardizing this lawsuit and the possible recovery of $2 million. That is a lot of money, I will ask him if he wants to suggest any language, so that we can accomplish what we want to accomplish, usually the Attorney General does not draft out any ordinance for you, but I will still ask if he wants to make a stab. I think they can certainly answer questions about what we can and can't do and when we can do it. Marion Doss; If you get an answer back we could probably hold a special meeting. Kit Williams: I think we could get a meeting called in two or three days. I think in this meeting you should go forward and give them the authority to get moving. Marion Johnson: Is there anything you need from us. Daran Williams: What we need is a recommendation with regards to arbitration versus litigation and our reason for that is we would like your authority to proceed with the arbitration. Pete Reagan moved to proceed with the arbitration. Robert Johnson seconded. Upon roll call the motion carried unanimously. A discussion followed on moving the funds to LOPFI. Investment Report: Kim Cooper with Longer Investments: We have in your package the June 30th report just so we can show you where the account stood at the end of the month, at that point your equities and equities mutual funds were about 33% of your portfolio. Your fixed income which includes all the preferred stocks, preferred debt, corporate bonds, treasuries, agencies, those were about 55% of your portfolio, cash and CD's were 10.4%. As of June 30th the total market value was $9.639 million and on that you had a current yield of 3.7%. To show you the difference we have also included a July 25, 2003 report. Your equities and your equity mutual funds are now 40.3%, so we have somewhat increased your equity exposure, we are still within your investment policy but we have just done a little bit more buying of some selective items since the end of the quarter. Your fixed income is still about at the same level, about 57% and what we have done is used your cash reserves to increase your equity exposure. As of the end of July your current market value is $9.648 million with again a yield of 3.7%. Page 15 shows what your largest equity holdings are, those are Pfizer, L-3 Communications, Microsoft, Minnesota Mining & Mfg and Illinois Tool Works and those are all within the guidelines of your investment policies with percentages that range from 1.4% to 1.1% of your portfolio. The next report that is titled Fixed Income Holdings shows you what the S&P and Moody's credit ratings are on all the bonds that you hold, plus if there are any call Fireman's Pension and Relief Fund Board Meeting July 31, 2003 Page 6 of 10 features on it. That is a report we like to put in there occasionally just so you can see the bonds that are rated, what those ratings are and just let you know what those are. We have some of the bonds that we purchased for you and some of the CD's have matured or been called but as we saw opportunities in fixed income we have gone ahead and reinvested and kept your fixed income level at about the same as it was last month. The one bond on page 17 the Enron Bonds those are still in default, but we did read some news on that, they have a bankruptcy plan in place and they are saying it will be somewhere under 20 cents on the dollar that you will get on those bonds. We can't sell them out right in the market because they are in default, but once that plan goes through you should get some money back on them. There is also in the back of your packages a copy of that news article. Pete Reagan: We have $32,000 worth of what we bought it at. Kim Cooper: That was your cost; you have $50,000 in bonds so of that $50,000 you will get about $10,000. Page 20 includes a summary of what your income and realized gains have been year to date, you have realized gains through June 30th of $64,000 and your net income, that's just the cash flow on your bonds and your dividends, is $115,000. Page 21 gives you a summary of your bonds and the total portfolio income on the account; right now your fixed income securities alone are earning 5% that is the yield to maturity on those securities and then adding all of the stock dividends, your total yield on your portfolio is 3.7%. Your weighted average maturity in your bonds is less than 10 years and as a percent of total portfolio your bonds are about 48%. The next report shows contributions and distributions since inception which have been $760,000. Page 23 is a performance report so far this year equities are up 13.5% and this we also updated through July 25, your equities are up 13.5% year to date, your bonds are up 1.5% so your total portfolio is up 5.5% and since we have been managing the account your total return has been 4.3%. The equity return since inception compares to the S&P which is about 7.4 and the Dow which is 7.2 so you have seen about market performance in your stocks. Page 24 is a report that shows you how we calculated the weighted average credit ratings on the equities that we hold in your account. Your policy calls for a minimum rating of B and an average rating of B+ and right now you are about at an A-. We have a copy of your investment policy. Marion Doss: Why are some called not rated? Kim Cooper: Some of the small companies aren't rated they are based on market capitalization and Standard and Poor's doesn't rate every single company. There is also B.P. Amoco a foreign entity and those companies aren't rated. What we do on the companies that aren't rated we assign a rating that's lower that the lowest rating so it doesn't skew your rating on the high side. Pete Reagan: Can you tell me what L-3 Communications is Kim. Kim Cooper: It's a defense company, they make communications for defense. Fireman's Pension and Relief Fund Board Meeting July 31, 2003 Page 7 of 10 A discussion followed on previous stock that was sold. Marion Doss: Any more questions for Kim. The Board thanked Kim for her report. Approval of the Minutes: Marion Doss: We didn't get around to approving the minutes of the last meeting. Pete Reagan moved to approve the minutes of the June 26, 2003 meeting. Danny Farrar seconded. The motion carried unanimously. Approval of the Pension List: Marion Doss: I noticed there are a couple of changes on the Pension List. The volunteer firemen received an increase as per Act 1370 is that correct Sondra. Sondra Smith: Yes, I have highlighted that on the report, the ones highlighted received the increase, what they were receiving and what they will be receiving with the increase. Marion Doss: So they will receive the minimum for the 20 years of service and some of them still get the $5.00 per year for each additional year over 20 is that correct. Sondra Smith: According to Marsha Farthing in accounting yes. Pete Reagan: I was thinking the fund had to be actuarially sound before you could do that Marsha. Marsha Farthing: It was a State law. I think you all can't pass an increase without it being sound but this was through the State. Pete Reagan: Right, but I thought any time we give an increase it has to go through the Pension Review Board, I don't think that this and I may be wrong, we need to check on this before we approve this, but I think it has to be before we give a benefit increase the fund has to be actuarially sound. Marion Doss: The difference might be this, we are not giving this benefit increase, it might be similar to the one a few years ago where the minimum for paid firemen went to $350 per month and we didn't have anything to do with that it just happened. Sondra Smith: Act 1370 states "for voluntary firefighters in no case shall the payment to the retired member be less than $100" and it use to say less than $50 per month "and the payment shall be made in accordance with the justice and equity of each case as determined by the Board of Trustees of the Firemen's Relief and Pension Fund". It says in no case shall it be less than. Fireman's Pension and Relief Fund Board Meeting July 31, 2003 Page 8 of 10 Robert Johnson: So we can do anything we want to as long as we vote yes. A discussion followed. Pete Reagan moved to approve the pension list and the pension increase for volunteer firemen as per Act 1370. Danny Farrar seconded. The motion carried unanimously. Old Business: LOPFI Plan: Danny Farrar: I have a question for Pete, the resolution, on the 10 year drop you had a conversation with David Clark addressing it which I am all for and Steve emailed you something back saying he wasn't real sure. Pete Reagan: What I got in our phone conversation yesterday from David because Cathryn was out of the office was that it would have no increase on the cost to the fund or the cost to the City. I asked him if he could put that in writing so I could take it to my meeting, he said well I would share a copy of the email from the actuary but I have already deleted it, so I said well get me something. I guess in the conversation David had with Steve, he told Mr. Davis that there would be no significant impact, which no impact and no increase is two different things. So Steve faxed this to Cathryn this morning and asked for her comments, and one of the questions was the closed Fire Pension Board wants to consider a ten year drop, what impact this change will have on the calculation dated July 16, 2003. Marion Doss: David Clark sent to Steve on the 28th regarding a follow up on the telephone conversation regarding extending the drop to ten years and allowing continued employment after the drop for your local plan fire members. Due to the fact you are consolidating with LOPFI these provisions would not have a material impact on cost as provided in the consolidated evaluation you received when you were in Fayetteville on the 17th. GRS advised me the cost would not be material due to the small number of active local plan participants compared to the active LOPFI participants 5 versus 74 and the low number of active DROP participants compared to the other local plan participants 5 versus 50. Also as you know these provisions only apply to local plan members, not LOPFI members. That was actually from him and it was copied to Steve Davis. Pete Reagan: I did this resolution all on my own and you are free to change whatever you feel like needs to be changed. A discussion followed on LOPFI and the resolution drafted by Pete Reagan. Draw Down: Fireman's Pension and Relief Fund Board Meeting July 31, 2003 Page 9 of 10 Sondra Smith: The draw down memo you we received from Sharon in Accounting was just letting us know that the total amount for all pension plans was the $384,000. Fire was $209,000 for Larry, $78,000 for the pension payments. The $96,000 did come out of the Police Pension. Larry Freedle's Employee Number Missing: Marion Doss: Larry Freedle has a number next to his name now I noticed. Sondra Smith: The numbers are new employee numbers that are assigned after someone retires. Marion Doss: I just always thought the first guy retired was number 1 and the next is number 2. New Business: Sondra Smith: Someone mentioned at one of the meetings about doing a resolution if you do change the fund to LOPFI showing your support of Longer Investment and what all they have done for the fund since they have had it so there will be no negative affect on their business. Pete Reagan moved to draft the resolution on Longer Investments Danny Farrar seconded. Upon roll call the motion carried unanimously. Marion Doss: I think it has been obvious that Longer has done a real good job for us. I want to thank Pete for working on that resolution. Steve Davis: I spoke to Cathryn and she is just as interest as we are in not doing anything to jeopardize the claim against Merrill Lynch. So in order to bring this thing to an understanding where we need to go, she and I talked about having a couple of Fire Pension Board members, Marsha, myself and Kit go to Little Rock and talk with Cathryn and the LOPFI attorney, to make sure whatever the plan is it meets with the objectives with both the board and LOPFI and it doesn't jeopardize any of your standings in the claim against Merrill Lynch. Sondra Smith: Why not have their attorney come here. Steve Davis: Because their attorney cost them money, the LOPFI attorney is going to charge four hours of travel time at their normal billing rate. Pete Reagan: Steve don't you think a teleconference can settle this. Steve Davis: Probably could. A discussion followed on doing a meeting via a telephone conference call. Fireman's Pension and Relief Fund Board Meeting July 31, 2003 Page 10 of 10 Marion Doss: Let's explore that and try to set a time up and do it that way. Marion suggested Thursday, August 7, 2003 for the conference call. A discussion followed on the date and time for the conference call. Meeting adjourned at 12:00 PM.